“Pricing” Carbon: The
(Significant)Value of Carbon Cycle
Research in Informing Decisions
Integrated NACP Science to Application
7 February 2013
Molly K. Macauley
Vice President for Research and Senior Fellow
NASA CMS Science Definition Team
The US “social cost of
carbon”
Climate sensitivity parameter
Mean averted damages by switching with EO
vs AltI [Trill USD 2015], BAU ->DICE Opt. 95%
confidence, 0.2C/decade trigger
VOI: BAU -> DICE Optimum @ 0.2C/decade
mean
damages
[Trill USD
2015]
stdev
BAU 2.5%
40.08
18.55
BAU 3%
24.61
10.95
BAU 5%
5.48
2.06
8.32
4.19
6.22
2.36
2.56
0.43
10.74
4.74
7.88
2.51
3.06
0.37
with 95%
certainty:
VOI-EO 2.5%
Discovered by
VOI-EO 3%
EO
VOI-EO 5%
VOI-A/C/I 2.5%
Discovered by
Alternative VOI-A/C/I 3%
VOI-A/C/I 5%
discount rate
2.5%
2.43
3%
1.66
5%
0.50
Shaded charts: Preliminary– Pls do not quote/cite
Wielicki, Young, and Cooke DRAFT 2012; Discount Rate from US SCCC 2010
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Applications of the SCC
The SCC is to enable estimates of economic
damages to be taken into account in regulatory
actions that require (by law or statute) the balancing
of benefits and costs to meet GHG emissions
standards.
The SCC has been used in about 20 regulatory
decisions so far. Examples:
• Fuel efficiency standards (US Dept of
Transportation)
• New boiler efficiency standards (US Dept of
Energy, US EPA)
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Estimation of the SCC, part 1
Assumptions:
Changes in future emissions of GHGs; the effects of
past and future emissions on the climate system; the
effect of changes in climate on the physical and
biological environment; the translation of the env’l
impacts into economic damages.
Default Methodology:
Use integrated assessment models (DICE, PAGE,
and FUND) – but at expense of a detailed
representation of the underlying climatic and
economic systems
Greenstone, Kopits and Wolverton 2013
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Estimation of the SCC, part 2
Steps:
Translate changes in emissions into changes in
atmos GHG concentrations using the carbon cycles
built into the IAMs, then changes in temp using a
representation of the climate and “climate
sensitivity,” then effects are monetized based on
functions that make assumptions about adaptation
and translate physical effects into economic
damages (using a discount rate to convert the
stream of economic damages over time into a single
value)
Greenstone, Kopits and Wolverton 2013
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Estimation of the SCC, part 3
Equilibrium climate sensitivity:
Determines the speed and magnitude of
temperature change for a given emissions path.
Defined as the increase in the annual global-average
surface temperature from a doubling of atmospheric
CO2 concentrations relative to preindustrial levels; a
short- to medium-term response (100 to 200 years);
does not include feedback effects due to possible
large-scale changes in ice sheets or the biosphere
Greenstone, Kopits and Wolverton 2013
7
SCC Needs CMS
Large uncertainties in the climate sensitivity
parameter (as well as other assumptions)
The US Federal Interagency report describing
the analysis establishing the SCC expressed “all
due humility” about the limitations of the analysis
and pledged that the United States government
would periodically review and reconsider SCC
estimates.
US Department of Energy 2010
8
SCC Needs CMS, continued
Our aim here is to describe these assumptions
in sufficient detail to enable readers to conduct
their own research and suggest improvements
so that future efforts to revise the SCC will rely
on a methodology that improves on the one
described here.
Greenstone, Kopits and Wolverton 2013
9
Engage more fully with the social scientists?
• Huge demand and interest to improve
approach
• Consequential parameter for decisionmaking
and it is the “law of the land” (through
regulation)
• Invitation extended to improve
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References
US Interagency Working Group on Social Cost of
Carbon, Technical Support Document: Social Cost of
Carbon for Regulatory Impact Analysis Under Executive
Order 12866, February 2010, at
http://www.epa.gov/otaq/climate/regulations/scc-tsd.pdf
Greenstone, M., E. Kopits, and A. Wolverton. 2013.
“Developing a Social Cost of Carbon for US Regulatory
Analysis: A Methodology and Interpretation,” Review of
Environmental Economics and Policy 7(1), 23-46.
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